Will The Research Tax Credit Be Extended Permanently?

Posted by Guest Blogger on Jul 10, 2013

The research tax credit has been around since 1981. The credit is generally available if you incur research and development expenditures for qualified research that are technology based and intended for the development of new or improved processes, products, techniques, or formulas (among other requirements).

Do you know how many times the credit has expired and been extended since it was enacted back in 1981? The answer is at least eight expirations and 15 extensions. The credit expired as recently as the end of 2012 but was extended through 2013 with the American Taxpayer Relief Act of 2012. If you answered that question correctly, I applaud you for keeping up with the changes. I don’t know about you, but I am getting tired of looking up to see when the credit will be expired.

If you are tired of never-ending expirations and extensions, I have some good news to report.

Soon after the passage of the ATRA, a few research credit bills were introduced in the 113th Congress (H.R. 119, H.R. 120, H.R. 905, and S. 193). H.R. 119 and 905 would make the credit permanent. H.R. 120 calls for extending the credit through 2014 and a higher credit amount. S. 193 would allow start-up companies to use the credit against payroll taxes. Finally, President Obama previously proposed making the credit permanent back in 2010 and again during the State of the Union back in February. His proposal is in the President’s Fiscal Year 2014 Revenue Proposals again.

In addition, the Senate Finance Committee issued a Business Investment and Innovation discussion paper as a series of tax reform options for committee members to consider: permanently extending the credit, modifying the current method for simplified computation and eliminating the credit completely.

However, one of the challenges to passing such legislations is the cost. The Joint Committee on Taxation estimated a $14 billion loss of revenue over the next 10 years from the research tax credit extension in the ATRA of 2012.

I certainly hope that the 113th Congress would produce a different result, especially with strong bipartisan support in tax reform. It remains to be seen if this Congress can do something that has never been done over 30 years.

But a bigger question is: is the credit worth the cost to you and fellow taxpayers? Would making the credit permanent bring the US economy up and help us become a leader in innovation?

Obviously some members of this Congress believe so.

The real question is do you?

Jason Cha, CPA, Technical Manager - Taxation, American Institute of CPAs. Jason serves as staff liaison to the Corporations and Shareholders Technical Resource Panel, as well as the Tax Methods and Periods Technical Resource Panel and related task forces. Prior to joining the AICPA, Jason was a tax manager at KPMG LLP. His 14-plus years of public accounting experience includes advising clients on tax issues affecting individuals, pass-through entities, and corporations.